ANALYSIS: Top Mississippians back private flood insurance

Mississippi’s top insurance regulator and its only Democratic congressman are both ready to cede some of the federal flood insurance market to private insurers.

Both Republican Insurance Commissioner Mike Chaney and U.S. Rep. Bennie Thompson say they’re open to proposals being considered in Congress that would make it possible for private insurers to enter the market in a big way. Key among those would be a legal mandate that banks accept private as well as public insurance when they issue mortgages, Chaney said.

The availability of flood insurance is a key concern for the 65,000 Mississippi homeowners who currently pay the National Flood Insurance Program to reimburse them from damage caused by floodwaters. Almost two-thirds of the policies are in the state’s three Gulf Coast counties, but there are also significant concentrations in Jackson and Greenville.

The current law expires Sept. 30 and must be renewed. Chaney said he’s hoping for a straightforward five-year renewal. But last time the law was up there were 18 separate lapses in the program before Congress agreed on a new law. Each of those interruptions gums up the real estate market, because people can’t borrow money to buy a house in a flood plain if they can’t buy a flood insurance policy.

And that new law, which called for sharply higher premiums, ended up being overhauled two years later to limit premium increases.

But the flood insurance program is still carrying nearly $25 billion in debt largely incurred from damages paid after hurricanes Katrina and Rita in 2005, as well as 2012’s Hurricane Sandy. Right now, policyholders are subject to a minimum 5 percent increase in premiums, which could rise to 8 percent under a Republican proposal in the House. That would hurt the ability of lower-income property owners to afford insurance, some advocates warn.

But the new part of the debate is the re-entry of private insurers into the market. The private market collapsed after 1965’s Hurricane Betsy caused widespread damage in Florida and Louisiana. Now, though, a few companies are coming back.

Chaney said that only one company, Coastal American Insurance Co., sells a policy that covers traditional homeowners insurance plus flood insurance right now in Mississippi. Gulfport-based Coastal American was founded to provide alternatives in the stressed coastal market after Katrina. The company says homeowners may be able to structure a combined wind-and-flood policy to reduce premiums.

Coastal American has said that, so far, it’s mainly selling policies to people in low-risk areas, including many who have never had flood insurance. That’s because older structures in flood zones that wouldn’t meet today’s elevation requirements and building codes are grandfathered at lower rates under the federal program. Also, the federal program requires continuous coverage to keep the lower rate, meaning anyone who tried private insurance would lose the rate break.

Chaney said Congress must mandate that mortgage companies accept private flood insurance to make the market work.

Thompson said he’s interested in one private insurer bearing flood and traditional homeowner’s policy risks, because he shares critics’ concerns that private wind insurers shifted claims after Katrina onto the federal program. Those claims featured in various lawsuits brought on the Mississippi Gulf Coast.

“To be honest, I think the taxpayers are being taken for a ride in the name of national flood insurance,” Thompson said.

Thompson said he would be interested in shifting flood insurance into the private market, “as long as the burden of cost wasn’t disproportionately more than what it is at this point.” That way, one insurer might be responsible for all damage to a structure, making it impossible to shift blame.

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